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TMI Blog1982 (3) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-1972. Out of the accounts of the said firm, both Mr. Bishamber Lal and Mr. Amar Lal from 1-4-1970 to 31-3-1972 gifted Rs. 20,000 to their respective wives, i. e., Mr. Bishamber Lal gifted the said sum to his wife Shakuntla Devi whereas Mr. Amar Lal gifted the very said sum of Rs. 20,000 to his wife Bhagwan Devi. Both Mr. Bishamber Lal and Mr. Amar Lal also gifted Rs. 2,000 each to four minor sons, i. e., Mr. Bishamber Lal to Mr. Sanjay Kumar and Mr. Ajay Kumar, whereas Mr. Amar Lal to Mr. Ravinder Kumar and Vinod Kumar, which would be clear from the following chart : "Mr. Bishamber Lal Date Amount Name 1-4-1970 5,000 27-4-1970 5,000 Shakuntla 31-3-1971 5,000 Devi 31-3-1972 5,000 31-3-1972 2,000 Ajay (M) 31-3-1972 2,000 Sanjay (M) Mr. Amar Lal 1-4-1970 5,000 27-4-1970 5,000 Bhagwan Devi 31-3-1971 5,000 31-3-1972 5,000 31-3-1972 2,000 Ravinder (M) 31-3-1972 2,000 Vinod (M)." 3. With effect from 1-4-1972, Mr. Bishamber Lal got out of the said firm of Amar Lal Bishamber Lal and Shakuntla Devi, wife of Mr. Bishamber Lal, joined Mr. Amar Lal as his partner and Mr. Sanjay Kumar and Mr. Ajay Kumar, minors, were admitted to the benefits of the partnership. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. P. Singh, vehemently argued that the origin of income of the assessee's wife and two minor sons like the income of Mr. Amar Lal's wife, and his minor sons is resulting out of collusive gifts. He relied up on the Bombay High Court decision in the case of U. S. Patel v. CIT [1980] 123 ITR 257 and argued at length making his submission that the main point to be seen is, is it as a departure from the normal course that the assessee's wife and two minor sons came to earn profit from the said firm. He submitted that it was on the basis of contribution of capital that the assessee's wife and two minor sons came to have profit from the said firm as it was on that basis that they became partners. He submitted that the nexus is more than apparent with the capital transferred than with the gift made by the assessee to his wife and minor sons and it is nothing but a case of manoeuvring out of collusive gifts and in support of his contention he relied on the case of Jose v. CIT [1967] 64 ITR 29 (Ker.). He also drew our attention to the relevant clause regarding capital contribution in the two partnership deeds---those written in the case of Amar Lal Bishamber Lal and Bhajrang Bali Rice Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly. Since the origin of the said income is out of a partnership and, if we look to the definition of 'partnership', we find that in the Indian Contract Act, 1872, it was contained in section 239 (now repealed by the Indian Partnership Act, 1932) which was founded upon Kant's definition who defined 'partnership' : "As a contract of two or more competent persons to place their money, effect, labour and skill or some or all of them in lawful commerce or business and to share the profit and bear the loss in certain proportions." This definition was condensed in section 239 of the Indian Contract Act in the following words : "Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits thereof between them." The above said definition raised some criticism in the case of Polley v. Driver [1976] 5 Ch. D. 458 at the hands of Mr. M. R. Jessel who came forward with a ground that there may be a dormant partner such as the widow or relative of some former partner who contributes nothing at all---neither capital nor skill nor anything else. It was in order to meet the above said crit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of assessments of Amar Lal Bishamber Lal for the assessment years 1971-72 and 1972-73, which was accepted by the assessee, could not be fatal to his claim as the interest received by the wife and minor sons on amounts of gifts received from the assessee could not be equated with the shares of profit of the assessee's wife and two minor sons because the said interest was directly on the amounts of gifts given by the assessee to his spouse and minor sons without consideration. From perusal of assessment orders in the case of Amar Lal Bishamber Lal for earlier years or those of the ITO for the year under consideration, we are unable to lay hands on any finding that the gifts were cross-gifts and the same could not be so because they are to the assessee's wife and two minor sons. Regarding the fact that the gifts from Mr. Bishamber Lal and his brother Mr. Amar Lal are collusive, again the same cannot be said to be so because if Mr. Bishamber Lal gifts to his wife and sons and Mr. Amar Lal gifts to his wife and sons, we are unable to understand as to how the same would become collusive. The same at the most can be termed as a result of planning or tax avoidance. Tax avoidance thrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary that the revenue should prove affirmative evidence suggestive of an agreement or a scheme of cross-transfers. The statutory provisions of section 16(3)(a)(iii) and (iv) were, therefore, applicable to the gift of shares made to the assessee's wife and minor children and the income from those shares was to be included in the assessee's total income." As a matter of fact, on the issue, it is the Supreme Court decision in the case of Prem Bhai Parekh which holds the field at the moment and following is what has been held in the said case : "Before an income can be held to come within the ambit of section 16(3)(a)(iii) or (iv), it must be proved to have arisen directly or indirectly from a transfer of assets made by the assessee in favour of his wife or minor children. The connection between the transfer of assets and the income must be proximate. The income in question must arise as a result of the transfer and not in some manner connected with it. . . . that the connection between the gifts made by the assessee and the income of the minors from the firm was a remote one and it could not be said that that income arose directly or indirectly from the transfer of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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